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Tuesday, March 2, 2010

The Washington state Senate today approved House Bill 2560, which would allow the insurance commissioner to create a market assistance plan and, if necessary, a "joint underwriting association" if the flood insurance market in Washington's Green River Valley collapses.

Last fall, the Army Corps of Engineers said that a weakened abutment to the Howard Hanson Dam meant that the Corps might have to release substantially more water than usual through the dam for the next few years. As a result, the risk of flooding in the valley below was for a time said by the Corps to be as high as 1 in 3. (Now, after significant work on the dam, the Corps says the risk has been reduced to 1 in 33.)

As a result, many businesses in the flood plain last fall reported major difficulties in finding flood coverage to insure above the National Flood Insurance Program's maximum: $500,000 for a commercial building and $500,000 for contents. Many businesses in the heavily industrialized area have more at risk than that, particularly if one factors in business-interruption losses.

In response, state insurance commissioner Mike Kreidler requested legislation giving him the authority to create a market assistance plan -- a sort of match-making service between people seeking insurance and those selling it -- and allowing for the creation of a Green River Valley JUA.

Insurers might be required to participate in the market assistance plan. If that doesn't ease the crisis, the next step would be a joint underwriting association. Known as JUAs, these serve as a publicly-organized insurer of last resort when an insurance market collapses. The insurance wouldn't be cheap -- the underwriting still has to be actuarially sound, with a $5 million maximum per policy -- but at least it would be available for businesses desperate to mitigate their risk. (The JUA insurers' liability is also capped at $250 million.)

The bill passed the House last month, and Sen. Jean Berkey led the floor action as the Senate passed it Tuesday, 28-17. (See video below.) It now goes to Gov. Chris Gregoire.

The Insurance Information Institute came out today with an interesting analysis of the differences in insurance coverage between Haiti and Chile, both of which has suffered major earthquakes in recent days.

According to the I.I.I.'s Robert Hartwig, Chilean building codes are also among the strictest in the world, largely due to a devastating quake there in 1960.

The numbers are startling, both in terms of lives lost (Haiti 200,000+, Chile 723 so far) and insurance coverage ($2.3 billion in premiums for coverage in Chile in 2008, versus $19 million in Haiti).

What about us? Well, the group also notes that earthquakes in the United States are not covered under standard homeowners or business insurance policies, and that even in California, the state believed to be most at risk of a catastrophic quake, only 12 percent of homeowners carry quake coverage.

The link above also includes a list of 10 largest earthquakes in Chile in recent history, as well as a list of the 10 most costly quakes in the world.